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SB Partners – ‘10-Q’ for 9/30/19

On:  Wednesday, 11/13/19, at 12:39pm ET   ·   For:  9/30/19   ·   Accession #:  1437749-19-22635   ·   File #:  0-08952

Previous ‘10-Q’:  ‘10-Q’ on 8/12/19 for 6/30/19   ·   Next:  ‘10-Q’ on 5/14/20 for 3/31/20   ·   Latest:  ‘10-Q’ on 11/14/22 for 9/30/22

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  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

11/13/19  SB Partners                       10-Q        9/30/19   38:1.8M                                   RDG Filings/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                    HTML    260K 
 2: EX-31.1     Certification -- §302 - SOA'02                      HTML     21K 
 3: EX-31.2     Certification -- §302 - SOA'02                      HTML     21K 
 4: EX-32.1     Certification -- §906 - SOA'02                      HTML     14K 
 5: EX-32.2     Certification -- §906 - SOA'02                      HTML     15K 
35: R1          Document And Entity Information                     HTML     40K 
18: R2          Consolidated Balance Sheets (Current Period         HTML     65K 
                Unaudited)                                                       
14: R3          Consolidated Balance Sheets (Current Period         HTML     20K 
                Unaudited) (Parentheticals)                                      
23: R4          Consolidated Statements of Operations (Unaudited)   HTML     72K 
34: R5          Consolidated Statements of Changes in Partners'     HTML     29K 
                Equity (Deficit) (Unaudited)                                     
17: R6          Consolidated Statements of Cash Flows (Unaudited)   HTML     73K 
13: R7          Note 1 - Organization and Significant Accounting    HTML     22K 
                Policies                                                         
24: R8          Note 2 - Investments in Real Estate                 HTML     33K 
33: R9          Note 3 - Assets Measured at Fair Value              HTML     66K 
26: R10         Note 4 - Investment in Sentinel Omaha, LLC          HTML     43K 
38: R11         Note 5 - Accrued Expenses                           HTML     18K 
20: R12         Note 6 - Distribution to Partners                   HTML     18K 
16: R13         Note 2 - Investments in Real Estate (Tables)        HTML     28K 
25: R14         Note 3 - Assets Measured at Fair Value (Tables)     HTML     63K 
37: R15         Note 4 - Investment in Sentinel Omaha, LLC          HTML     40K 
                (Tables)                                                         
19: R16         Note 2 - Investments in Real Estate (Details        HTML     13K 
                Textual)                                                         
15: R17         Note 2 - Investments in Real Estate - Summary of    HTML     27K 
                Investments in Real Estate (Details)                             
27: R18         Note 3 - Assets Measured at Fair Value - Fair       HTML     25K 
                Value Measurement of Assets (Details)                            
36: R19         Note 3 - Assets Measured at Fair Value -            HTML     43K 
                Reconciliation of Assets Measured at Fair Value                  
                (Details)                                                        
22: R20         Note 4 - Investment in Sentinel Omaha, LLC          HTML     23K 
                (Details Textual)                                                
12: R21         Note 4 - Investment in Sentinel Omaha, LLC -        HTML     30K 
                Balance Sheet (Details)                                          
29: R22         Note 4 - Investment in Sentinel Omaha, LLC -        HTML     34K 
                Statement of Operations (Details)                                
30: R23         Note 5 - Accrued Expenses (Details Textual)         HTML     18K 
21: R24         Note 6 - Distribution to Partners (Details          HTML     18K 
                Textual)                                                         
32: XML         IDEA XML File -- Filing Summary                      XML     61K 
28: EXCEL       IDEA Workbook of Financial Reports                  XLSX     27K 
 6: EX-101.INS  XBRL Instance -- sbp-20190930                        XML    450K 
 8: EX-101.CAL  XBRL Calculations -- sbp-20190930_cal                XML     65K 
 9: EX-101.DEF  XBRL Definitions -- sbp-20190930_def                 XML    384K 
10: EX-101.LAB  XBRL Labels -- sbp-20190930_lab                      XML    321K 
11: EX-101.PRE  XBRL Presentations -- sbp-20190930_pre               XML    405K 
 7: EX-101.SCH  XBRL Schema -- sbp-20190930                          XSD     67K 
31: ZIP         XBRL Zipped Folder -- 0001437749-19-022635-xbrl      Zip     44K 

See notes to consolidated financial statements

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See notes to consolidated financial statements

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See notes to consolidated financial statements

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See notes to consolidated financial statements

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SB PARTNERS

Notes to Consolidated Financial Statements (Unaudited)

General

The consolidated financial statements for the three and nine months ended September 30, 2019 and 2018 reflect the operation of one wholly owned industrial flex property located in Maple Grove, Minnesota and a 30% interest in Omaha.

Registrant’s wholly owned property located in Maple Grove, Minnesota is 100% leased to a single tenant to October 31, 2024. The tenant pays fixed base rent which increases approximately 3% each year. The tenant pays directly or reimburses Registrant for all utilities, real estate taxes, insurance and most of the property operating expenses and property management fees.

Omaha’s portfolio as of January 1, 2019 consisted of eight garden apartment properties located in five markets. Leases generally are for one year or less. Tenants generally pay fixed rent plus utilities used by tenant. On April 6, 2019, Omaha sold its garden apartment property in Independence, Missouri. Net sales proceeds were used to first pay selling expenses and retire the property’s related secured mortgage loan. On May 6, 2019, Omaha sold its garden apartment property in Columbus, Ohio. Net sales proceeds were used to pay selling expenses and were used to retire Omaha’s secured mortgage loan encumbering its garden apartment property located in Charleston, South Carolina to further pay down Omaha’s debt.

Results of Operations

Total revenues from continuing operations for the three months ended September 30, 2019 decreased $1,000 to approximately $280,000 as compared to approximately $281,000 for the three months ended September 30, 2018. Total revenues decreased due to a decrease in interest income partially offset by an increase in base rental income and other income. Interest income decreased due to a decrease in cash reserves. Base rental income increased $2,000 to approximately $190,000 for the three months ended September 30, 2019 as compared to the same period in 2018 due to a scheduled increase in base rent at Registrant’s property located in Maple Grove, MN. Other income increased due to an increase in real estate taxes charged back to the tenant.

The Registrant reported a net loss from operations of approximately $142,000 for the three months ended September 30, 2019, an increase of $26,000 as compared to a net loss from operations of approximately $116,000 for the same period in 2018. Net loss from operations consists of net income from the Maple Grove property offset by partnership income and expenses. The increase of loss from operations was primarily due to higher total expenses. Total expenses from operations for 2019 increased $24,000 to approximately $421,000 from approximately $397,000 in 2018, due primarily to an increase in management fee expense of $24,000 and an increase in repairs and maintenance expense of $12,000. This was partially offset by a decrease in administration expense of $6,000 and a decrease in professional fees expense of $6,000.

Total revenues from continuing operations for the nine months ended September 30, 2019 increased $5,000 to approximately $837,000 as compared to approximately $832,000 for the nine months ended September 30, 2018. Total revenues increased due to an increase in base rental income and other income. Base rental income increased $13,000 to approximately $569,000 for the nine months ended September 30, 2019 as compared to the same period in 2018 due to a scheduled increase in base rent at Registrant’s property located in Maple Grove, MN. Other income increased due to an increase in real estate taxes charged back to the tenant. Interest income decreased due to a decrease in cash reserves.

The Registrant reported a net loss from operations of approximately $437,000 for the nine months ended September 30, 2019, an increase of $68,000 as compared to a net loss from operations of approximately $369,000 for the same period in 2018. Net loss from operations consists of net income from the Maple Grove property offset by partnership income and expenses. The increase of loss from operations was due to higher total expenses partially offset by higher total revenue. Total expenses from operations for 2019 increased $73,000 to approximately $1,274,000 from approximately $1,201,000 in 2018, due primarily to an increase in management fee expense of $72,000, an increase in repairs and maintenance expenses of $7,000 and an increase in administration costs of $12,000. This increase was partially offset by a decrease in professional fee expense of $5,000, a decrease in depreciation expense of $12,000 and a decrease in amortization cost of $7,000.

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The Registrant has a 30% non-controlling interest in Omaha that is accounted for on a fair value basis. Net increase in net assets decreased $4,941,000 to approximately $8,816,000 for the nine months ended September 30, 2019 compared to net increase in net assets of approximately $13,757,000 for the same period in 2018. During 2018, Omaha sold its garden apartment property located in Asheville, North Carolina, its garden apartment property located in Fresno, California and its high rise apartment property located in Omaha, Nebraska. Net sales proceeds in each transaction were used to first pay selling expenses and retire each property’s related secured mortgage loan. Remaining net sales proceeds were used to retire Omaha’s unsecured loan and were used to retire Omaha’s secured mortgage loan encumbering its garden apartment property located in Columbus, Ohio to further pay down Omaha’s debt. Retirement of the unsecured loan removed certain restrictions placed on Omaha by the lender including making distributions to its members including Registrant. During the first nine months of 2019, Omaha sold its garden apartment property located in Independence, Missouri and its garden apartment property located in Columbus, Ohio. Net sales proceeds in each transaction were used to first pay selling expenses and retire each property’s related secured mortgage loan. Remaining net sales proceeds were used to retire Omaha’s secured mortgage loan encumbering its garden apartment property located in Charleston, South Carolina to further pay down Omaha’s debt. During the nine months ended September 30, 2019, Omaha reported a net decrease in the value of its remaining real estate portfolio of $2,600,000.

During 2018, the variable interest rates on Omaha loans increased as short term LIBOR rates increased. The one month LIBOR rate increased from an average of (1.4925%) during December 2017 to an average of (2.4582%) during December 2018. The one month LIBOR rate decreased to an average of (2.0432%) during September 2019. Fixed mortgage interest rates for multi-family properties of similar class and location as Omaha’s portfolio also increased during 2018 from an approximate range of 4.35% to 4.50% near the end of 2017 to 5.05% to 5.10% near the end of 2018. Fixed mortgage interest rates have decreased during 2019 to an average of 3.90% to 3.97% in September 2019. Although changes in fixed mortgage rates do not impact the operating cash flow of the Omaha properties directly, increases in fixed and floating rates on commercial mortgage debt can have a negative impact on capitalization rates and the sales prices Sentinel Omaha may achieve in the future.

The investment in a 30% non-controlling interest is valued at a discount due to the lack of liquidity and ownership of a non-controlling (minority) interest. Registrant has reported a reserve on the value of Omaha on its books of 20% since September 30, 2018.

On April 11, 2019, Sentinel Omaha paid a distribution to Registrant in the amount of $5,100,000. On April 16, 2019, the general

partner declared a distribution of $400 per full unit for all partners holding units or participations on May 31, 2019. The distribution was paid on September 4, 2019. On May 31, 2019, Sentinel Omaha paid a distribution to Registrant in the amount of $3,300,000. The distribution was used to pay accrued investment management fees and accrued expenses and to increase cash reserves of the Registrant.

For additional analysis, please refer to the discussions of the individual properties below.

This report on Form 10-Q includes statements that constitute "forward looking statements" within the meaning of Section 27(A) of the Securities Act of 1933 and Section 21(E) of the Securities Exchange Act of 1934 and that are intended to come within the safe harbor protection provided by those sections. By their nature, all forward looking statements involve risks and uncertainties as further described in the Registrant’s latest annual report on Form 10-K. Actual results may differ materially from those contemplated by the forward looking statements.

CRITICAL ACCOUNTING POLICIES

The Registrant’s critical accounting policies are described in its Annual Report on Form 10-K for the year ended December 31, 2018. There were no significant changes to such policies in 2019. There are no accounting pronouncements or interpretations that have been issued, but not yet adopted, that Registrant believes will have a material impact on its consolidated financial statements.

Liquidity and Capital Resources

As of September 30, 2019, the Registrant had cash and cash equivalents of approximately $1,054,000. These balances are approximately $716,000 higher than cash and cash equivalents held on December 31, 2018. Cash and cash equivalents increased during the nine months ended September 30, 2019 due to distributions received from Omaha combined with cash flow generated from operating activities at Registrant’s wholly owned property. This increase was partially offset by a distribution paid to the partners and payments of accrued investment management fees and accrued expenses, payments to replace the roof at Registrant’s wholly owned property as well as partnership expenses paid.

Currently, Registrant’s only consistent source of cash is rental income received from the tenant that leases 100% of the leasable space at Registrant’s wholly owned property in Maple Grove. The tenant reimburses Registrant for real estate taxes, insurance and most of the properties’ operating expenses leaving a significant portion of the base rent received available to fund capital improvements and partnership administrative expenses.

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Registrant pays the General Partner and an affiliate of the General Partner fees for services performed. A portion of the fees during 2011 to 2018 were accrued while Registrant’s unsecured loan was outstanding. Since the unsecured loan has been retired, Registrant was allowed to pay the accrued fees and current fees. On April 11, 2019, Sentinel Omaha paid a distribution to Registrant in the amount of $5,100,000. On April 16, 2019, the general partner declared a distribution of $400 per full unit for all partners holding units or participations on May 31, 2019. The distribution was paid on June 4, 2019. On May 31, 2019, Sentinel Omaha paid a distribution to Registrant in the amount of $3,300,000. The distribution was used to pay accrued investment management fees and accrued expenses and to increase cash reserves of the Registrant. Registrant anticipates cash flow generated from the property located in Maple Grove and current cash reserves will be sufficient to pay ongoing operating and capital improvement costs, other working capital requirements of the Registrant and current fees due to the General Partner and its affiliate. The Registrant has no debt except normal trade accounts payable and accrued investment management fees.

During the quarter, inflation and changing prices did not significantly affect the markets in which the Registrant conducts its business, or the Registrant's business overall.

Eagle Lake Business Center IV (Maple Grove, Minnesota)

Total revenues for the three months ended September 30, 2019 increased $3,000 to approximately $278,000 as compared to approximately $275,000 for the three months ended September 30, 2018. The property reported higher base rental income and higher other rental income. Base rental income was higher in 2019 due to a scheduled increase in the base rent. Other income increased due to an increase in real estate taxes charged back to the tenant. Net operating income, which includes deductions for depreciation, decreased $6,000 for the three months ended September 30, 2019 to approximately $167,000 from approximately $173,000 for the three months ended September 30, 2018 due primarily to higher operating expenses partially offset by higher total revenues. Operating expenses were higher due to higher repairs and maintenance expense and real estate tax expense.

Total revenues for the nine months ended September 30, 2019 increased $18,000 to approximately $835,000 as compared to approximately $817,000 for the nine months ended September 30, 2018. The property reported higher base rental income and higher other rental income. Base rental income was higher in 2019 due to a scheduled increase in the base rent. Other income increased due to an increase in real estate taxes charged back to the tenant. Net operating income, which includes deductions for depreciation, increased $17,000 for the nine months ended September 30, 2019 to approximately $510,000 from approximately $493,000 for the nine months ended September 30, 2018 due primarily to higher total revenues. Operating expenses were flat due to lower depreciation expense partially offset by higher real estate tax expense and higher repairs and maintenance expenses.

Investment in Sentinel Omaha, LLC

Comparison of three months ended September 30, 2019 to September 30, 2018:

As of September 30, 2019, the Omaha portfolio consisted of six multi-family properties located in three markets. Omaha’s total revenues for the three months ended September 30, 2019 were approximately $6,220,000. Income before net unrealized losses was approximately $2,485,000. Major expenses included approximately $534,000 for interest expense, $615,000 for repairs and maintenance, $835,000 for payroll, and $767,000 for real estate taxes. Omaha reported net unrealized gains of approximately $2,313,000 resulting in a net increase in net assets of approximately $4,799,000. For the three months ended September 30, 2019, the Registrant’s 30% equity interest in the income of Omaha was approximately $1,440,000. Registrant reserves 20% of the reported value of Omaha on its balance sheet for September 30, 2019. The reserve for value was adjusted in conjunction with recording the equity income for the quarter ended September 30, 2019. As a result, Registrant reported net income from equity interest in income of Omaha for the quarter ended September 30, 2019 of $1,152,000.

As of September 30, 2018, the Omaha portfolio consisted of nine multi-family properties located in six markets Omaha’s total revenues for the three months ended September 30, 2018 were approximately $8,224,000. Income before net unrealized income and net realized gains was approximately $2,773,000. Major expenses included approximately $1,130,000 for interest expense, $750,000 for repairs and maintenance, $1,133,000 for payroll, and $1,061,000 for real estate taxes. Omaha reported net unrealized gains of approximately $3,558,000 resulting in a net increase in net assets of approximately $6,331,000. For the three months ended September 30, 2018, the Registrant’s 30% equity interest in the income of Omaha was approximately $1,899,000. Registrant reserves 20% of the reported value of Omaha on its balance sheet for September 30, 2018. The reserve for value was adjusted in conjunction with recording the equity income for the quarter ended September 30, 2018. As a result, Registrant reported net income from equity interest in income of Omaha for the quarter ended September 30, 2018 of $1,519,000.

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Comparison of nine months ended September 30, 2019 to September 30, 2018:

Omaha’s total revenues for the nine months ended September 30, 2019 were approximately $20,333,000. Income before net unrealized losses and net realized gains was approximately $7,709,000. Major expenses included approximately $2,629,000 for interest expense, $1,743,000 for repairs and maintenance, $2,724,000 for payroll, and $2,187,000 for real estate taxes. Omaha reported net unrealized losses of approximately $12,528,000 and net realized gains of approximately $13,635,000 resulting in a net increase in net assets of approximately $8,816,000. For the nine months ended September 30, 2019, the Registrant’s 30% equity interest in the income of Omaha was approximately $2,644,000. Registrant reserves 20% of the reported value of Omaha on its balance sheet for September 30, 2019. The reserve for value was adjusted in conjunction with recording the equity income for the nine months ended September 30, 2019. As a result, Registrant reported net income from equity interest in income of Omaha for the nine months ended September 30, 2019 of $3,796,000.

Omaha’s total revenues for the nine months ended September 30, 2018 were approximately $25,739,000. Income before net unrealized losses and net realized gains was approximately $8,979,000. Major expenses included approximately $3,961,000 for interest expense, $2,101,000 for repairs and maintenance, $3,364,000 for payroll, and $3,091,000 for real estate taxes. Omaha reported net unrealized losses of approximately $5,162,000 and net realized gains of approximately $9,940,000 resulting in a net increase in net assets of approximately $13,757,000. For the nine months ended September 30, 2018, the Registrant’s 30% equity interest in the income of Omaha was approximately $4,127,000. Registrant reserves 20% of the reported value of Omaha on its balance sheet for September 30, 2018. The reserve for value was adjusted in conjunction with recording the equity income for the nine months ended September 30, 2018. As a result, Registrant reported net equity in net increase in net assets of Omaha for the nine months ended September 30, 2018 of $5,807,000.

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ITEM 3.

None

ITEM 4.

CONTROLS AND PROCEDURES

PART II – OTHER INFORMATION

ITEM 6.

EXHIBITS

Exhibit No.           Description